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               Treasurer’s Overview of TL Finances

 Introduction 
The financial health of the Association, the adequacy of maintenance and renovation of the facilities, are important to the quality of life at Telegraph Landing and the value of the investment in our condominiums. I present information in this overview so homeowners may develop a clearer picture of the financial health of the Association and to gain a better understanding of TL ‘operating’ and ‘reserve’ (capital) finances.

Reserve Account vs. Operating Account
There are two bank accounts at TL. The monthly payments from homeowner’s dues go into an operating account to pay the day-to-day expenses of running operations at TL.  Since 1999, a portion of the homeowners’ dues has been transferred to a reserve account.  In 2004, $275K was transferred from the operating account into the reserve account.

The reserve account is used to fund capital improvements, i.e., repairs and major improvements to the facilities, where the useful life is measured in years.  The reserve account is funded by special assessments, from transfers of funds from the operating account, and from interest earned on funds in the reserve account.

Once funds are transferred to the reserve account, they may only be used to pay for capital expenses.  Monies in the reserve account are invested in safe debt instruments, such as treasury bills or federally guaranteed bonds, as required by law and TL CC&R’s.

Reserve Studies
By law, TL must complete a 30-year forward-looking, professionally generated, ‘reserve study’ every three years.  The study is based on the expected wear and tear of facilities and it forecasts future repair work and asset replacement. It is a living document, which may be modified on a yearly basis by the Board, as new information about the state of the facility develops.

The Finance Committee makes recommendations to the Board on how to best fund the repair work or major projects identified in the reserve study.  The Board considers the reserve study and financial recommendations, discusses these issues with the homeowners, and then decides what capital work should be undertaken and how it should be funded.

In 2004, the Board commissioned the Helsing Group, a well-respected consultant for reserve studies, to develop a grounds-up analysis of TL facilities.  This study is due to be completed in February 2005.

Reserves and Capital Spending 2000 through 2004
TL was in poor financial health in 1999.  Reserves had been depleted to about $600K and there were insufficient funds in the operating account to pay operating expenses in a timely manner.  On November 11, 2000 the Board presented a reserve study that indicated that $4M in capital funds would be required from 2000 to 2005, and more in future years.  The major projects forecasted for years 2001 through 2005 are shown in the next chart.

            2000 Reserve Study

 Based on this study, in 2000 the Board proposed, and homeowners approved, a special assessment of $3.2M, to be collected over 5 years. $2.75M has been collected to date and the last collection of $450K is due in June 2005. 

A tabulation of the actual flow of funds, into the reserve account and the actual capital expenditures out of the reserve account, is shown in the next two charts.

Flow of Funds into the Reserve Account

Capital Expenditures from Reserve Funds

 Commentary
From January 2000 through 2004 the association added $4,201K to the reserve account and spent $2,430K from the reserve account.

Major capital expenditures over the last four years have included $1,078K for the remodel of the complex, about $400K to date (including engineering) to repair townhouse patios and roof decks, $295K to repair heating and ventilation, and $169K to rewire electrical panels. 

The remodeling of the complex, repair of the hot water system, and repair of the electrical system, cost more money than the 2000 Reserve Study predicted. The repair of townhouse roofs will ultimately cost far more than the 2000 Reserve Study predicted.  The high-rise buildings have not been painted and the intercom system has not been upgraded, as was budgeted. While it is reasonable to postpone the upgrade of the intercom system, the painting of the exterior of the complex is overdue, since the painting protects the buildings from moisture penetration and the current layer of paint has been worn razor thin.

Next, let’s turn our attention to ‘Operations’

 2005 Budget and Operating Spending Trends

We can begin to gauge how well the TL operational budget is being managed by examining the growth in operational spending over time and by comparing operational spending at TL with spending at similarly sized complexes in our area of the City.  Let’s first compare the 2005 budget with actual spending in 2004 and then lets look at the growth in spending since 2000.  The 2005 operating budget is the Finance Committee’s best projection, made in October 2004, of what the operational expenses will be in 2005.

The 2005 Budget Compared with 2000 Spending

 The 2005 Operating Budget of $1,560K is $104K more than the $1,456K ‘preliminary’ actual spending in 2004. Utility expenses are expected to increase by $67K in 2005. $12K was added to pay a project manager to coordinate the work effort and look after TL interests during the repair of roofs, windows, the painting of buildings, and the repair of the planter near building 1 – all likely activities in 2005.  There are also increases projected for what we will pay for janitorial and security services.

The Finance Committee and Board are looking for ways to reduce operational expenses while preserving or enhancing the quality of services at TL. $65K in potential savings has been identified in the areas of janitorial, equipment maintenance, project management and landscaping. The budget however was built upon what we expect to spend, not what we hope to achieve.  It is our goal, however, to limit actual spending in 2005 and spend less than budget.

The 2005 Budget Compared with 2000 Spending

 It’s informative to consider whether increases over a longer period of time are reasonable.  Let’s consider that spending has increased from $1,149K in 2000 to $1534K in the 2005 Budget.  Most of the $385K increase in spending occurred in the following areas:

 $191K of the $385K overall increase in operational spending was due to the increase in cost of utilities.  Of the $71K increase in security costs, $41K was due to increased labor expenses.  Of the $58K increase in administration costs, $40K was due to increased insurance premiums, necessary to insure the increase in value of Telegraph Landing property. Of the $35K increase in janitorial, $27K was due to increased labor expenses.  The increases seem reasonable.

The 2005 Budget Compared with. Other local Condominium Associations.

By comparing the TL budget with spending at 3 nearby complexes of comparable size (187 to 235 units), we can gauge how well the TL budget is being managed.  In the following tabulation, the expenses for these other complexes have been normalized to be equivalent to 190 units, the number of units at TL. 

Commentary

Administrative costs are relatively low at TL. Janitorial and equipment maintenance expenses are comparable, although there is room for improvement. Security expenses seem reasonable, considering our around the clock coverage.  Landscaping expenses are relatively high at TL and in December we negotiated a 10% reduction in this expense. Further reductions need to be explored.

The largest difference in expenses at TL and the other complexes is in the cost of utilities, with TL utility expenses on average $300K higher.  In the other complexes homeowners get billed directly for the electrical usage in their home.  On average, this represents a savings of $205K in association expense.  There are trash compactors in Complex A, which lowers their cost for garbage pick up.  In Complex B, the homeowners pay for cable TV directly.

TL operational expenses are second lowest if you subtract the utility expenses that are billed directly to homeowners at these other complexes. 

Although there is work to be done in reducing operational expenses and improving services, it appears the operating expenses at TL are reasonable.

                                                                                                     - Respectfully, Barry Shiller, Treasurer